Why the Markets crashed - Ask Him

Economics is a funny discipline. After all, when prices of potatoes spurt, economists call it inflation and when stock prices increase, it is hailed as a booming economy! Contrary to the popular understanding, it is not an abstract, theoretical and stand-alone subject. In fact, it is rooted in culture, mirrors fundamental laws of natural sciences, tempers through psychology, explained mathematically, influences politics and gets influenced by religion. In short, economics is incapable of being rationalised. But if you thought economics was complex, it is a walk in the park when compared to stock markets. What stock markets bear to economics, the Upanishads bear to Vedas. The recent stock market crash presented a perfect opportunity for me to seek enlightenment. Given the complexities involved I did not believe any mortal, I approached Him to understand who and what caused the mid May mayhem.

“Who is responsible and why did the stock markets crash?” I asked Him upfront. “To go down, something has to go up. Explain that first,” He said. That was an easy one. One needn’t be a Dan Brown to decipher this. I said that things had improved in India over the past few years. Reforms have come to stay whatever be the colour of the government. A stable government and an 8% annual growth have contributed to increased FII money coming into the Indian bourses lead to the unprecedented growth in the share prices. “The most intriguing thing is that the stock markets crashed when nothing had changed dramatically,” I said concernedly. “In a globalised scenario, external factors have a significant influence. Are you aware about the increase in American Fed interest rates?” He enquired. I explained that though the Fed has been increasing rates for over two-years, they were in small doses and markets seem to have discounted them. “What makes you think that the tipping point has not been reached?” He quizzed. He had a point, I mean, a tipping point. Surely at some stage investment in Indian stocks would be considered risky, especially when the US Fed is constantly hiking interest rates. I conceded the argument for the time being but added, “You have not explained who is responsible and why the crash.”

He maintained a stoic silence for some time and quipped, “The timing of the issue of the draft CBDT circular was not daft.” Obviously he was referring to the draft circular that sought to tax FII as traders in India instead of investors. Instantly I was keyed up and asked the next logical question, “Who and Why?” little realising, that He dwells on issues and never on personality. “But you are also underestimating the damage caused by one single interview by one important leader of an influential ally of the government, seeking to re-introduce long term capital gains tax and have a re-look at the India-Mauritius double tax avoidance treaty, especially when these are settled issues,” He said after a long mandatory pause. “Are you suggesting that this interview triggered the crash?” I enquired. “Narada, learn to look at issues as a composite whole,” He cryptically replied. Was He suggesting that there was a well-orchestrated plan by the Government and its allies to infuse some correction in an overheated market? When I posed a question to that effect He caustically remarked “Can Government execute something tangible?” I momentarily forgot that He was a liberal and like me had very little faith in Government. “It is only in India that convergence of individual conveniences masquerades as confluence of co-incidences,” He said. It sure was a googly. I was unable to get the import of it. He refused to answer any further questions and left me in a state of serious contemplation. Questions that were difficult to answer and answers that gave rise to more questions. Why did markets crash? Who is responsible? Why did CBDT issue the draft circular now? Why did the Left leaders suddenly visit settled issues? Were the players involved acting in tandem or independently? Did all these or any of these trigger the collapse? Was it a conspiracy by external forces or sheer co-incidences? More crucially, who profited from this crash? Only God seems to have answers. Ask Him.